China’s economic power is revealing itself with increased numbers of takeovers of Western firms. The Economist takes a straw poll of the consequences

“Buying up the world: The Coming Wave of Chinese Takeovers”. The lead article in The Economist [Nov 13-19 2010] indicated the significance this global issue. Its sub-title was even more dramatic: “Being eaten by the Dragon”.

Even before the article was published, the Western business press had become aware of the takeover of the Volvo car operations by the emerging Chinese giant Geely [August 2010] . The near-iconic Swedish auto-maker had already experienced one trauma when it was acquired by Ford.

In the takeover process, Geely also acquired Stefan Jacoby, the former chief executive of Volkswagen Group in America. He became the new CEO for Volvo. Geely-Volvo’s Chinese headquarters, research and development center, and production base will be located in Shanghai International Automobile City.

Long-term planning in China: The “Go Out” slogan

The Economist study recalls a long-term policy conceived at least a decade ago through which Chinese companies were encouraged to become more international, under the slogan “Go Out”. The consequences are now becoming clearer. China’s need to invest keeps up the pressure for such ventures. Still growing, China’s largely state-controlled firms already account for over 10% of global stock market value.

Qualified awe

Western executives reported to the Economist of their qualified admiration and :

“Awe at China’s ambition and technical skill and a more qualified assessment of the companies’ abilities to run international businesses. Emotion and trust matter because authority [appears to be] opaque.”

Culture shock

Other executives reported culture shock at the diverse representation involved in discussions. The Government plays a role, but the Western executives at present appear to be unclear precisely how. The most senior commercial person may be present but leaves was often perceived to be there in a symbolic role, “to keep protocol” while more technically versed executives take the lead. The impression is that much goes on “off stage” which remove many potential hurdles to the planned takeover. At that stage, access to finance and other needed resources becomes easy.

Every MBA student knows much about the organisational structure and strategy of the classical Western-style business organization. The knowledge is grounded in the vast information base to be found in popular and scholarly texts, and libraries of case-studies. In contrast, the workings of firms originating in other cultures are far well-distributed. To be sure, International Business is now becoming an important part of the MBA curriculum, but the maps are very much of relatively unexplored territories. Contrast this with the history of General Motors, which was documented from its earliest days not least by a famous book written one of its most influential leaders. The dominant theory of the modern firm has even given us the expression Fordism to capture the idea of a modern production form of organisation.

International Business and Emerging Capitalisms

The emerging global issues are challenging these hallowed maps. We are beginning to see how business has to be studied as a complex set of inter-dependencies between firms and institutional structures. The question is being raised whether capitalism itself has to be rethought. Should we be exploring the emerging dragon as an illustration of a new economic form?

Into the future

The mini-study concluded that the current conditions will place pressures which will require considerable management change, and perhaps more institutional transparency. “The next generation of Chinese executives…[are likely to] prove more far more effective …the old guard has taken a rusting industrial base and made from it gleaming corporate giants. Yet if these firms are to achieve their full potential abroad, their creators may have to relax their grip”.